2011 QCCQ 10433, 2011 QCCQ 10433

Journey Freight International Inc. c. Twist Production inc. (Produits de résine Access inc.) 2011 QCCQ 10433 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF QUEBEC “Civil Division” No.: 200-22-052895-091 DATE: September 12, 2011 ______________________________________________________________________ PRESIDING: THE HONOURABLE RAOUL P. BARBE, J.C.Q. (JB2754) ______________________________________________________________________ JOURNEY FREIGHT INTERNATIONAL INC. , 445 St-Jean-Baptiste Avenue, Suite 290, Quebec, Quebec G2E 5N7 Plaintiff v.

TWIST PRODUCTION INC. , formerly ACCESS RESIN PRODUCTS INC. , 695 Du Carbonne Street, Quebec, Quebec G2N 2K7 Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Through a court application served on November 27, 2009, the plaintiff claims $54,745.38 as a result of an undischarged debt owed to it for services obtained through misrepresentation. THE FACTS [ 2 ] The plaintiff is a company incorporated in 1998 that offers land and air freight transportation services.

Its majority shareholder is 6511945 Canada Inc. and its president is Brian De Filippo. [ 3 ] Access Resin Products Inc. is a company incorporated in 2006 that operates in the manufacturing and sale of pool-related equipment. Its shareholder is Pronto Production ABM Inc. and its directors are Danielle Giroux, Alain Gauthier, Marc Jacques and Bernard Juneau. [ 4 ] The defendant ships its products in Canada and the United States at a monthly cost of about $20,000.

In 2007, it used the services of RM Logistic (later RedMarket) (transcript 2010-09-21 p. 7). [ 5 ] In June 2007, the plaintiff, through Andréanne Lord, who was in charge of soliciting new clients, went to the industrial park; Ms. Lord attended the premises of the defendant and met with Marc Roy, the shipping manager, whom she told about the plaintiff’s shipping services (transcript 2010-03-19 pp. 6, 7 and 8). She contacted Mr. Roy again in November 2007. She estimated potential business with the defendant at about $100,000 annually (transcript 2010-03-19, p. 9). In mid-January 2008, Ms. Lord met again with Mr.

Roy (transcript 2010-03-19 p. 13). She called him several times with a view to the plaintiff making a tender. [ 6 ] In February 2008, the defendant’s production areas suffered damage due to two fires following the mechanical breakdown of one of the rotational moulding machines. This fire delayed production by about a month. The defendant claimed approximately $200,000 from its insurer (transcript 2010-09-21, p. 29).

The insurer, AXA, granted $114,761.17 (P-18). [ 7 ] On April 2, 2008, the plaintiff, through Andréanne Lord, whose job was to solicit new clients for the plaintiff (transcript 2010-03-19, p. 5), sent an email offering shipping services (D-1) to the defendant, to the attention of Marc Roy, the defendant’s shipping manager (P-10): [ translation] I just wanted to remind you about our TL shipping services to the U.S. and that, even for partial loads, our rates are competitive and we’re very strong on the West Coast. We also serve Western Canada both in LTL and TL; don’t hesitate to contact me.

[ 8 ] On April 9, 2008, Access Resin Products, through Caroline Fortier, its purchasing manager, asked the plaintiff to tender for various shipping routes to be served in Quebec (P-8). [ 9 ] The plaintiff, through Andréanne Lord, answered that it would be pleased to provide a [ translation] “quote” (P-8): [ translation] Hello Caroline, I’m glad you contacted me for a quote. I’ve already met with Marc Roy of your company, and he mentioned that my TL rates to the U.S. were competitive. I also gave him some LTL quotes for Western Canada and he said that they were attractive rates as well.

If you would like tenders for these sectors, I’d be pleased to provide them. Concerning pallets in Quebec, which is what we’re interested in now, here are the rates. Don’t hesitate to contact me if you have any other questions about our services. [ 10 ] The defendant, through Caroline Fortier, accepted the proposal (D-2): [ translation] OK GOOD IT LOOKS COMPETITIVE SO TOMORROW I NEED PICK UP FOR DELIVERY TO: PISCINES & SPAS ALAIN RIOUX 266 ARTHUR SAUVÉ BLVD.

ST-EUSTACHE, QUEBEC … 1 PALLET, 45X45X80 75LBS PICK UP AT: ACCESS RESIN PRODUCTS INC. 695 CARBONE QUEBEC CITY, QUEBEC G2N 2K7 CONTACT MARC ROY AT … FOR THE SHIPPING [ 11 ] On April 10, 2008, the plaintiff, through Ms. Lord, sent an email along with an account opening form (P-9) (transcript 2010- 03-19, p. 25) to the defendant, to the attention of Ms. Fortier. [ 12 ] That same day, the defendant sent the plaintiff information on Access Resin Products Inc., its financial institution, and its suppliers (P-10 and D-3). [ 13 ] Ms.

Lord, for the plaintiff, showed it to her superiors, who authorized her to go ahead with the shipping contracts (transcript 2010-03-19, pp. 32 to 34). [ 14 ] On April 10, 2008, the defendant (Ms. Fortier) asked the plaintiff (Ms. Lord) if it could make a delivery to L’Assomption. The plaintiff said replied in the affirmative (D-4). [ 15 ] On April 11, 2008, the defendant (Ms. Fortier) requested some prices for shipping to Clifton Park NY, Hauppauge, New York and Chatham, New Hampshire (P-8a). The plaintiff answered in the affirmative. [ 16 ] On April 15, 2008, the defendant (Ms.

Fortier) asked the plaintiff for a tender for various places in the U.S. (D-5): [ translation] I HAVE A QUESTION FOR YOU, IT’S NOT TOO URGENT. NEXT YEAR WE’RE GOING TO HAVE A NEW PRODUCT TO SHIP TO THE U.S. BY 48X48X92 PALLET, TOTAL WEIGHT OF PALLET = 735 LBS. COULD YOU GIVE ME A TENDER FOR FLORIDA, INDIANA, TEXAS AND NEW YORK? WE NEED AN APPROXIMATE IDEA FOR THE COST OF THE PRODUCT.

THANKS FOR YOUR TIME AND I DON’T NEED AN ANSWER TODAY…THE WEEKEND IS FINE IF YOU WANT [ 17 ] The plaintiff (Ms. Lord) completed her reply (D-5): [ translation] I forgot to mention that if you want to send smaller pallets (100 – 200 lb. size) with samples or display units for clients and distributors, we have excellent rates in those markets.

Give me a call if you’re interested. [ 18 ] On April 30, 2008, the plaintiff had billed $10,987.94 but had not received payment. [ 19 ] Martin Fortier, the plaintiff’s collections manager, states that after 30 days, an account is past due (transcript 2010-03-19, p. 9) and he calls the client. At the beginning of May, Mr. Fortier called Marc Roy, who referred him to Caroline Fortier (transcript 2010- 03-19, p. 13, 14). He spoke to Ms.

Fortier, who referred him to Danielle Giroux, the finance manager (transcript 2010-03-19, p. 16 to 18). [ 20 ] During May 2008, the plaintiff billed for $14,110.69 (P-11 and P-14) and did not receive any payment for either April or May. [ 21 ] At the end of May 2008, Ms. Giroux met with representatives from BDC to discuss the financial situation and find new investors (transcript 2010-09-21, pp. 71 and 72). [ 22 ] At the beginning of June 2008, Mr. Fortier tried to speak to Ms. Giroux, without success; Mr.

Fortier sent Andréanne Lord to see whether the plant was operating; she came back saying that there was no sign of the company having problems (transcript 2010-03- 19, p. 21, 22). [ 23 ] During the third week of June 2008, Mr. Fortier succeeded in reaching Ms. Giroux, who asked him for a breakdown of the invoices (transcript 2010-03-19, p. 25). Mr. Fortier sent her a statement of account. Ms. Giroux called him back and told him that there was no problem. He asked if he could go pick up the cheque. She said not right away because the company’s owner was on vacation (transcript 2010-03-19, p. 28, 29).

A week later, Mr. Fortier called again to ask about picking up the cheque, but Ms.

Giroux asked him to wait because the defendant had not received the cheque from the insurer for the February 2008 fire (transcript ibid ., pp. 29 and 30), but she expected the cheque in a few days ( ibid ., p. 31). [ 24 ] During the month of June 2008, the plaintiff continued to ship for the defendant, for the sum of $21,434.13 (P-11).It had still not received payment, however, for April ($10,987.94) and May ($13,110.69), totalling $46,522.76. [ 25 ] At the beginning of July 2008, the defendant gave the plaintiff some large orders to ship to the U.S. ($3,775 + $2,575 + $2,175 + $4,260). [ 26 ] Mr.

Fortier called Ms. Giroux and told her that her company had to pay, or else the plaintiff would stop the deliveries. Ms. Giroux answered [ translation] “no problem”. Mr. Fortier further explained (transcript 2010-03-19, p. 32): [ translation] It’s time to stop playing games, I haven’t seen a single cent…it’s July now and you haven’t paid, this has to be settled…we aren’t going to deliver anything…I’m keeping the van that was going to the U.S. full; all the other LTL trips will go to warehouses and will be billed to you. [ 27 ] Negotiations began, and on July 8, 2008, Mr.

Fortier faxed her an agreement (P-16): [ translation] WHEREAS Access has required the services of Journey since April 2008; WHEREAS Access is currently indebted to Journey for the amount of $61,042.76 plus the agreed interest and any charges for warehousing and collection (the “ Indebtedness ”); WHEREAS the parties wish to agree on terms and conditions for the repayment of the Indebtedness and attach security thereto. THE PARTIES HERETO AGREE AS FOLLOWS: 1. Access acknowledges that it is indebted to Journey for the amount of the Indebtedness.

2. Access undertakes to give Journey, no later than July 18, 2008, at 4 p. m., a written proposal for repaying the Indebtedness, which shall be to Journey’s satisfaction (the “ Proposal ”). 3. For as long as Journey has not accepted the Proposal, it may retain, as security for the Indebtedness, the merchandise covered by the purchase orders issued by Access bearing the numbers PO 650542, PO 34491, PO 771892 and AJ 109039 and by Journey’s Pro Bill bearing the number PB 102165, intended to be delivered to Baltimore, Maryland, USA (the “ Security ”). 4.

In light of the foregoing, Journey agrees to deliver the merchandise for which Access has required shipping and which is still in Journey’s possession, except for the Security. 5. Access acknowledges that Journey will bill it a warehousing charge of $500 a day for all merchandise awaiting delivery placed in storage at one of Journey’s or its agents’ places of business. 6. Journey agrees to suspend any measures to recover the Indebtedness from Access but reserves the right to reactivate such measures if, in Journey’s opinion and in its full discretion, the situation of Access deteriorates. [ 28 ] Ms.

Giroux said that she had to consult the owner, Bernard Juneau, before signing and that she would call back. She called back three days later to say [ translation] “we’re not going to sign your paper” (transcript 2010-03-19, p. 22). [ 29 ] Mr. Fortier replied (transcript 2010-03-19, p. 37): [ translation] Oh really?…you’ve been stringing me along all this time… it looks like we’re heading for a dead end…we’re going to take legal action as of today…your van is going to be seized…we’ll each arrange things with our lawyers. [ 30 ] Ms.

Giroux is said to have replied (transcript. 2010-03-19, p. 38): [ translation] You shouldn’t take it like that. The cheque from the insurance company may come in…the contents of that van absolutely have to be delivered. [ 31 ] On July 8, 2008, Ms. Giroux and Mr. Juneau met with the trustee in bankruptcy, Éric Vincent, to review the defendant’s financial situation and see what could be done (transcript 2010-09-21, pp. 69 and 75). [ 32 ] On July 14, Ms. Giroux had another meeting with Mr.

Vincent, the trustee in bankruptcy, to hear his analysis of the situation (transcript 2010-09-21, pp. 75 and 76). [ 33 ] According to Danielle Giroux, it was not until July 22 that the defendant decided to make a proposal (transcript 2010-09-21, p. 67). [ 34 ] On July 24, 2008, Access Resin Products Inc. filed a notice of intention to make a proposal to its creditors (P-2) in accordance with

section 50.4(1) of the Bankruptcy Act (P-19). [ 35 ] After that, Mr. Fortier learned from Éric Vincent, the trustee, that the defendant had made a proposal. [ 36 ] On October 21, 2008, the trustee in bankruptcy Éric Vincent filed his report on the proposal (P-12): [ translation] During the entire two fiscal years of its existence, the debtor accumulated net losses in the neighbourhood of $1 million.

The debtor's financial problems essentially resulted from the following: - Insufficient sales to cover the level of fixed charges; - Numerous technical product manufacturing problems; - Two fires leading to prolonged shutdowns; - Appreciation of the Canadian dollar in relation to the U.S. dollar in 2008; - Increase in oil costs throughout 2008, resulting in higher shipping costs for finished products and raw materials (resin). [ 37 ] On October 21, 2008, the trustee sent a proposal in bankruptcy (P-3) to the defendant's creditors, including the plaintiff.

This proposal referred only to the waiver of the dividend by certain persons (P-3, p. 3):

[ translation] If this proposal is accepted by the required statutory majority of the unsecured creditors and is approved by the court, GID DESIGN INDUSTRIEL INC., PRONTO PRODUCTION ABM INC., PRONTO PROTOTYPES INC., PRADO TECHNOLOGIES INC., INNOVAPLAS PRODUCTS INC., Alain Gauthier, Danielle Giroux, Marc Jacques and Bernard Juneau will waive, for the benefit of the other unsecured creditors, any dividend to which they are entitled under this proposal. [ 38 ] The general meeting of creditors was held on November 3, 2008, and Martin Fortier and Mtre Charles Mercier represented the plaintiff Journey Freight (P-4).

A majority in number representing two thirds in value of the unsecured creditors voted in favour of the proposal (P-3 and P-4). [ 39 ] On November 25, 2008, the Commercial Division (In Bankruptcy and Insolvency) of the Superior Court homologated the proposal (P-5). [ 40 ] On December 18, 2008, the plaintiff received $4,195.84 in dividends under the proposal, leaving an unpaid balance of $58,940.22 (P-13). [ 41 ] On January 25, 2009, the Trustee under the defendant's proposal, Samson, Bélair, Deloitte, issued a certificate of full performance of the proposal (P-6). [ 42 ] On October 23, 2009, the Trustee under the proposal was discharged by way of a judgment of the Assistant Registrar, Raymonde Auclair (P-7).

ANALYSIS AND REASONS [ 43 ] The plaintiff argues that notwithstanding the discharge order, it is entitled to obtain a condemnation against the defendant under section 178(1)(

e) of the Bankruptcy and Insolvency Act (RSC, 1985 c B-3): An order of discharge does not release the bankrupt from … (

e) any debt or liability for obtaining property by false pretences or fraudulent misrepresentation. [ 44 ] In the civil law, the legislator uses the term fraud (“ dol ”) to refer to fraud, false pretences, or fraudulent misrepresentation. Fraud is the mechanism in the Civil Code to sanction lack of good faith upon the formation of a contract. [ 45 ] In Quebec, the Bankruptcy and Insolvency Act may be construed in accordance with Quebec civil law principles.

In Les Obligations (Yvon Blais, 4th ed., 1993), Jean-Louis Baudouin writes (at 119 and 121): [ translation] 176 – Negative fraud – Concealment is negative fraud. It consists of allowing a contracting party to mistakenly believe something without disabusing the party of such belief, or of refraining from disclosing to the contracting party a material fact, that would change the party's willingness to enter into a contract.

It is therefore a negative lie or dishonesty through concealment. 179 – Direct deceit – Falsehood is direct and positive deceit, whereby a contracting party is informed that something does not exist in order to induce it to enter into a contract. Falsehood constitutes fraud provided that, in the circumstances of the case, it was serious and of decisive importance to the willingness of the contracting party to enter into a contract. 180 – Fraudulent schemes – Fraudulent schemes are [ translation] “subterfuge or clever or gross ruses with a view to deceit...”.

Deceitful manœuvres include a plan of deceit and a pre- planned scheme. It is the type of fraud that most closely resembles false pretences in criminal law, criminal fraud and breach of trust. However, deceitful manoeuvres do not need to be criminally wrong to be civilly punishable. An assessment of the deceitful nature of a manœuvre is a question of fact left to the Court's assessment. [ 46 ] The second paragraph of

article 1401 of the Civil Code of Québec is even clearer. It states: Fraud may result from silence or concealment . [ 47 ] In the comments, the Minister of Justice writes (vol.1, p. 850): [ translation] Lastly, in accordance with the trend in case law in recent years, the

article now admits that silence or concealment can constitute fraud in certain circumstances. There are situations where simply allowing a contracting party to mistakenly believe something without disabusing the party of such belief, or refraining from disclosing to the contracting party a material fact that would change the party's willingness to enter into a contract is just as wrong as a lie or a scheme . (Emphasis added.)

[ 48 ] In her

article entitled La bonne foi dans la formation du contrat , (1992) 37 McGill L.J. 1054 at 1060, Professor Brigitte Lefebvre notes that good faith and transparency in contractual relations are peremptory (p. 1061): [ translation] The most interesting developments in fraud are the courts' recognition of the concept of negative fraud or concealment, by which they place greater emphasis on good faith. Fraud may now result from concealment, or even the silence of one of the contracting parties. A party may not fail to disclose relevant information and, where applicable, such party must disclose all the information.

As a result, the parties have an obligation to inform so that each of them may knowingly decide to enter into a contract. [ 49 ] The French author J. Ghestin defines the obligation to inform in his Traité de droit civil (vol.

II), Les obligations – Le contrat, formation , 2d ed., 1998 at 566) as follows: [ translation] Finally, the party who knows or ought to know, especially by reason of his or her professional qualifications, a fact he or she knows to be of decisive importance to the other party is bound to inform that party of the fact from the moment it becomes impossible for that party to obtain information on his or her own, or when he or she might legitimately have relied on the co-contracting party, by reason of the nature of the contract, the capacity of the parties, or inaccurate information that had been supplied by that party. [ 50 ] In Bank of Montreal v.

Bail Ltée. ( [1992] 2 S.C.R. 555 at 586) , based on Ghestin's definition, Charles Gonthier J. defines the obligation to inform as follows: Without necessarily adopting that statement, I am of the opinion that Ghestin has correctly stated the nature and parameters of the obligation to inform.

He describes the main elements of the obligation as follows : • knowledge of the information, whether actual or presumed, by the party that owes the obligation to inform ; • the fact that the information in question is of decisive importance; • the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation. [ 51 ] The question that then arises is: did the defendant use false pretences or fraudulent misrepresentation to obtain the plaintiff's shipping services? [ 52 ] The plaintiff argues that, but for the false pretences of the defendant's employees, it would never have agreed to provide shipping services to the defendant. [ 53 ] The defendant, through its employees, denies having used false pretences with the plaintiff's representative.

The plaintiff allegedly took a business risk and unfortunately, it lost. The defendant adds that it was discharged and owes nothing to the plaintiff. [ 54 ]

Section 178(i)(

e) does not impose the burden of proving fraud but rather of proving false pretences. [ 55 ] According to the author Jacques Deslauriers in La faillite et l’insolvabilité au Québec (Wilson & Lafleur, 2004 at 500), a creditor relying on

section 178(i)(

e) must demonstrate: [ translation] - that the debtor made a representation; - that it was under false pretences; - that the debtor knew it; - that the debtor made this false statement to obtain property and that the creditor actually supplied such property. [ 56 ] The Court finds that the plaintiff discharged its burden of proof. [ 57 ] At the time it sent information about its credit (P-10), the defendant, through its employees, failed to disclose its financial problems, which it was aware of since the evidence shows that [ translation] “during the entire two fiscal years of its existence, the debtor had accumulated net losses in the neighbourhood of $1 million” (P-2).

In May 2008, the BDC representatives met with the officers of the defendant to discuss its financial position, which was deteriorating steadily. [ 58 ] The silence of the defendants' employees concerning its financial position constitutes false pretences or fraudulent misrepresentation of the defendant's financial position. Therefore,

section 178(i)(

e) of the Bankruptcy and Insolvency Act applies and, consequently, the defendant is liable.

[ 59 ] Furthermore, while it is true that the plaintiff took a business risk, this risk should not be based on concealment or fraud. [ 60 ] The evidence shows that 30 days after the first series of invoices were not paid by the defendant, the plaintiff contacted the defendant's representatives to inquire about the payment of the unpaid accounts. [ 61 ] Andréanne Lord, one of the plaintiff’s employees, went to the defendant's place of business in late June 2008. Marc Roy, the defendant's employee who showed her around the plant at the time, never mentioned any financial problems whatsoever. Rather, Mr.

Roy showed her the new equipment the defendant had purchased for $300,000, which tended to reassure the plaintiff. [ 62 ] In addition, the plaintiff, through its vice-president, had several discussions with the defendant's comptroller, Danielle Giroux, when the defendant had not made any payment on current billing. Ms. Giroux reassured Mr. Fortier by telling him that: (

a) the defendant was expecting an insurance claim cheque for the fire that had occurred in February 2008, which would cover payment of the plaintiff's invoices; (

b) the defendant intended to pay the plaintiff and that it was important for deliveries to continue; (

c) she agreed to negotiate (P-16). All the while, she was actually meeting with the trustee to consider a proposal in bankruptcy. [ 63 ] In short, Ms.

Giroux, whose memory failed her on a number of points, never mentioned the defendant's financial difficulties to the plaintiff's employees and even continued to keep alive the plaintiff's hopes of being paid, while she was in actual fact having meetings with the trustee to file a notice of intention to make a proposal in bankruptcy. [ 64 ] It must be concluded that the defendant committed a negative fraud, in that it let the plaintiff believe that its financial position was all right and did not set the record straight and by refraining from disclosing to the plaintiff that during the two fiscal years of the defendant's existence, it had accumulated net losses in the neighbourhood of $1 million (P-12), a material fact that perhaps would have changed the plaintiff's willingness to enter into a contract.

This is a matter of concealment and dishonesty. It provides clear evidence of fraud resulting from the silence and concealment of the defendant's employees. [ 65 ] Simply letting someone believe something without disabusing the party of such belief is just as wrong as a lie or a scam. [ 66 ] The evidence shows, on the balance of probabilities, that the defendant's employees misrepresented the defendant's financial position to the plaintiff's employees.

FOR THESE REASONS, THE COURT: GRANTS the application; DECLARES that the defendant's proposal in bankruptcy did not release the defendant from its indebtedness to the plaintiff; CONDEMNS the defendant to pay the plaintiff the amount of $54,745.38 , with interest at the legal rate since the filing of the notice of intention on July 24, 2008, interest on the interest at the same rate and since the same date, as well as the additional indemnity under

article 1619 of the Civil Code of Québec ; THE WHOLE , with costs. Raoul P. Barbe, J.C.Q. FASKEN MARTINEAU DU MOULIN Mtre Charles Mercier, Attorney For the plaintiff STEIN MONAST Mtre Jacques Blanchard For the defendant Date of hearing: April 21, 2011